The Equilibrium Degree of Transparency and Control in Monetary Policy

Lars Svensson and Jon Faust ()
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Jon Faust: Board of Governors of the Federal Reserve System

No 669, Seminar Papers from Stockholm University, Institute for International Economic Studies

Abstract: We examine a central bank's endogenous choice of degree of control and degree of transparency, under both commitment and discretion. Under commitment, we find that the deliberate choice of sloppy control is far less likely under a standard central-bank loss function than reported for a less standard loss function by Cuikerman and Meltzer. Under discretion, maximum degree of control is the only equilibrium. With regard to the degree of transparency, under commitment, a sufficiently patient bank with sufficiently low average inflaiton bias will always choose minimum transparency. Under discretion, both minimum and maximum transparency are equilibria. We argue that discretion is the more realistic assumption for the choice of control and that commitment is more realistic for the choice of transparency. A maximum feasible degree of control with a minimum degree of transparency is then a likely outcome. The Bundesbank and the Federal Reserve System are, arguably, examples of this outcome.

Keywords: Monetary policy; Central banks (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 31 pages
Date: 1999-04-01
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: The Equilibrium Degree of Transparency and Control in Monetary Policy (2002)
Working Paper: The Equilibrium Degree of Transparency and Control in Monetary Policy (1999)
Working Paper: The equilibrium degree of transparency and control in monetary policy (1999)
Working Paper: The Equilibrium Degree of Transparency and Control in Monetary Policy (1999)
Working Paper: The Equilibrium Degree of Transparency and Control in Monetary Policy (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iiessp:0669

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